Hail, Caesar

Eldorado and Caesars merger

Image source: nazarovsergey, ConstantinosZ, Massan - Shutterstock

What's going on?

On Monday, Eldorado Resorts confirmed its plan to buy rival US hotel and casino company Caesars Entertainment, creating America’s largest gaming operator.

What does this mean?

Eldorado is paying $9 billion for Caesars in a mixture of cash and its own stock. It’ll merge the two companies in order to cut duplicate costs, creating “synergies” – and pay off some debt with cash from a separate deal offloading part of both companies’ real estate holdings.

A deal’s been a long time coming: rival Golden Nugget approached Ceasars with an offer to share hands last year. Caesars folded, worried that the combined company would have too much debt. But an activist investor who owns 21% of Caesars’ shares went all-in, arguing that a merger could reduce costs while growing revenue – something the company’s struggled to do.

Why should I care?

For markets: You’ve got to know when to hold ‘em

Caesar’s stock rose 15% on Monday. The deal valued the company 28% above what it was worth on Friday, but the will-they-won’t-they of previous suitors perhaps stopped investors putting it all on black (though 70% of analysts recommended buying the stock). Eldorado’s stock fell 10%, perhaps as investors contemplated the risks of the union and its resultant synergies. But Eldorado has successfully snapped up several other gaming companies in the past – it bought Tropicana Entertainment just last year. Having been around the merger block a few times, the 90% of analysts who recommend buying its shares may see a lower chance of snake eyes.

Zooming out: Not all corporate proposals end in “I do”.

German retailer Metro rejected a $7 billion takeover offer from one of its largest investors on Sunday. Metro said that the (unsolicited) offer, which valued the company just 3% higher than its Friday price, gave other investors little incentive to sell. Metro’s stock rose on Monday nonetheless; investors perhaps bought it up in the hope of a higher offer to come.

Originally posted as part of the Finimize daily email.

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